Time for Keynes’ real ideas

19 comments on “Time for Keynes’ real ideas ”

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1. Bill 1

   23 November 2008 at 7:58 am

   Thanks for the very informative post/link Steve.

   Maybe you, or somebody else can answer a question I have about the idea of the ‘bancor’ as a reserve currency as in relation to :-

   “A “new Bretton Woods” system would have to replace that ( the US dollar) with what is generally referred to as a “market basket of currencies” that reflects the relative importance of the dollar, euro, yen, and other currencies.”

   http://www.zcommunications.org/znet/viewArticle/19707

   Allowing for the machinations around surpluses and deficits as outlined in Monbiot’s piece, would it be reasonable to view a ‘market basket of currencies’ as having the same effect as a ‘bancor’? Put another way, are the authors of the above linked piece actually talking about a ‘bancor’ but using different terms or are the two suggestions separate and distinct?

   I can’t figure it out and would appreciate thoughts on it.
2. RedLogix 2

   23 November 2008 at 7:59 am

   Fascinating. Thanks for this…. and first thing on a Sunday morning too! I must confess to being woefully underinformed about the orginal Bretton Wood conference, and the enormous impact it has had on our world.(Until a few months ago I didn’t even know that it was Keynes who had chaired it!)

   Several thoughts come to mind.

   1. I wonder if the USA had not blocked it, if Keynes International Clearing Union might not have evolved by now a global currency that was the sole medium of exchange for all international trade and financial transactions. Harry White might well have foreseen the ICU has a direct threat to the dollar hegemoney for this very reason.

   Such a development alone would have eliminated in one stroke all the parasitical hedge funds and currency speculators, whose monstrous overleveraged risk now threatens the real economy with fiscal carnage.

   2. I’ve had relatively little formal education in economics, but the two figures that stand most clearly in my mind are Keynes and Galbraith. I’m taking a punt here, but perhaps it was the Friedmanites and the subsequent Reagan/Thatcher era that caused Galbraith to loose much of his influence and popularity. Is it that why we hear so much of Keynes, but these days much less of Galbraith?
3. Bill 3

   23 November 2008 at 8:41 am

   Been reading a good few articles on the crisis and although I am no economist, I get the distinct impression that propositions from the bankers, financiers and politicians , intended to fix the problem are going to be as curative as applying leaches to cure anaemia.

   Generally speaking, doesn’t common sense dictate that you do not allow those who caused a particular problem to dictate the solution?

   Yet, we will no doubt be told we must ‘leave things to the experts and specialists’ and sadly, most people probably will.

   So having broken our legs they will probably, eventually, cobble together some crutches for our use, throw us back on the 100m sprint track of Capitalist competition and expect our thanks for their sterling efforts.

   Something to look forward to.
4. RedLogix 4

   23 November 2008 at 8:55 am

   Following the links I found this from the International Trade Union Congress, held just days ago ahead of the G20 Summit.

   Not only a powerful condemnation of what has happened, but unlike Key’s tepid waffle in Lima (which said nothing that everybody in the room didn’t already know), it proposes a whole raft of concrete and radical reforms.

   Yet at both the G20 and APEC summits Bush is blocking every attempt at reform, just as the USA has blocked all attempts at global reform for 80 years. It occurs to me that in just a few short years, Bush’s moronic refusal to act at this critical time, his obtuse defense of “free markets”… might well be remembered as even a greater mistake than the invasion of Iraq.
5. Robinsod 5

   23 November 2008 at 10:33 am

   The “beggar thy neighbour” inter-nation differentials that are required to facilitate big gains for the likes of ambitious currency traders would be threatened by a bancor system…

   When multinational finance holds so much more power than nation states – and has infiltrated their administrative ranks so thoroughly – don’t expects don’t expect any such sense to see the light of day…
6. rave 6

   23 November 2008 at 12:22 pm

   Unfortunately Keynes didnt have the answer at Bretton Woods and he still doesnt have the answer today. His scheme was utopian and remains so.

   Monbiot points out clearly why it wasnt in the interests of the US ruling class to adopt Keynes scheme. It would have lost its advantage as the hegemonic imperialist power to have its currency designated as the world currency.

   Britain on the other hand had already lost it hegemony. Keynes requirement that creditor nations export their surplus capital to avoid having it confiscated was what Britain had been doing for a century anyway. [Such surplus would not of course have been confiscated by an international clearing house, but as surplus capital it would have devalued rapidly unless invested abroad to return super-profits]. This system of capital export was called the British empire.

   Both the British and US ruling classes understood that the name of the game was not balancing trade between nations, but the rich nations buying up and owning the poor nations. That way their monopoly corporations could trade with themselves and cut out the other countries. They opted for the best way to do it given their relative positions as former and current hegemonic powers respectively.

   So there was nothing in Keynes scheme to challenge the capital export of the big powers in buying up the property of the weaker powers. Britain had done it for a century, and how the US could continue to do it without challenge and as we have seen in the last 30 years with a ruthless efficiency.

   All Bretton Woods did was to reflect the interests of the then hegemonic US. And today the US will not give up that hegemony by any post-Bretton Woods agreement.

   That means that at Bretton Woods Keynes scheme was already utopian, and that today any attempt to revive it sows massive illusions about the possibility of reforming global capitalist system heading for depression and inter-imperialist war.

   The way out of this is for the exploited and oppressed masses who’s economic resources are owned by US and other imperialist multinationals to nationalise those assets without compensation and use them to meet the basic needs of the people. All IMF, WB etc debts should be defaulted on and national and regional currencies that are based on the values of the nationalised assets put into circulation by state banks.

   Instead of a collapse of world trade caused by warring imperialist powers that would see massive destruction and hoarding of resources, we would have the basis of trade grow from a local, regional and eventually global scale based on assets owned by the people and valued by the labour required to produce them.

   There can be no rebalancing or redistribution of incomes among nations or people when a tiny minority owns the vast accumulated wealth of the world and has the power to prevent any change in this system. The change will only come when this concentration of wealth is expropriated by the people who produce it in the first place.
7. Ianmac 7

   23 November 2008 at 3:48 pm

   As an uninformed spectator, I have learned heaps today about Bretton Woods and the intent of Keynes. Thanks Steve. I have read of the effect of the IMF “rebuilding” Vietnam, (Cambodia?) by investing huge amounts of money in building up the tourist industry by building very flash hotels but staffing with foreigners and profits going out of the country leaving the natives worse off than before. And osing the cooperative nature of education and health to privatisation ordered by the IMF. The end product is that the nation ends up more indebted than before.
   How would Keynes plan prevented this?
   And what is the plan for NZ in the short or medium term?
   What a pity that a consortium of like minded nations couldn’t form their own balance of payments (bancor?) system independent of the big bully nations. (I am writing from knowing little. Apologies!)
8. Brian Lee 8

   23 November 2008 at 5:12 pm

   If you really want to understand what Keynes had to say about the importance of international economic cooperation, including internationally coordinated fiscal and monetary policies and effective international economic institutions, and you don’t have time to read the 30 volumes of his Collected Writings, you might like to try biographies of Keynes by
   – Donald Moggridge
   -Robert Skidelsky
   – Roy Harrod, and
   – Donald Markwell’s “John Maynard Keynes and International Relations”.
9. northpaw 9

   23 November 2008 at 9:24 pm

   Redlogix,
   I’m taking a punt here, but perhaps it was the Friedmanites and the subsequent Reagan/Thatcher era that caused Galbraith to loose much of his influence and popularity. Is it that why we hear so much of Keynes, but these days much less of Galbraith?

   Betcha backside on it! The so-called Austrian attack – (meeters at Mont Pelerin, including anti-statist Hayek et al) have deliberately aligned Keynes with statist ‘answers’. Re Galbraith, J.K.’s son remains a chip of the old block, teaches Texas, and reads well in sometimes extensive articles.. if you are so inclined.

   Rave, I sense your seeming reliance on George Monbiot’s piece has you open unduly harsh on J.M.K. American bankers had big problems with this guy whose intellect alone, not to mention high tonal voice and attitude toward their personal attacks on him proved wearying. I won’t go on about this here, but you may care to take in Witness’s Skinny on Banking series.. pointed.. insightful.. relevant especially in early parts 1-5 ..
10. Phil Sage (sagenz) 10

    23 November 2008 at 9:33 pm

    just curious. please explain US debt, the trillions of chinese holdings of us treasuries and the arab stakes in so many us corporations including such instruments of financial hegemony as Citigroup in the context of all the assertions above. can you use also refer to the actual amount of capital and loans controlled and held by the imf vs these foriegn holdings in the US. are you suggesting the US should nationalise all these holdings?
11. Paul Walker 11

    23 November 2008 at 9:40 pm

    “One of the reasons for financial crises is the imbalance of trade between nations.”

    It is?? How so? All the reasons have I seen argued about have nothing to do with trade, so how exactly does trade being about financial crises?

    “Countries accumulate debt partly as a result of sustaining a trade deficit.”

    No. They could run up debt because of a trade deficit, depending on what he means by this term, but there is no reason why you have to. As Donald J Boudreaux point it “Careful readers will note that a trade deficit bears no necessary relationship to debt”. There is no more a relationship between debt and a trade deficit for a country than there is between me running up debt and the trade deficit I have with my supermarket. I may run up debt, but then again I may not.
12. Pascal's bookie 12

    23 November 2008 at 9:55 pm

    Some linky love:

    On topic: A link heavy piece by John Quiggin at Crooked Timber talking about what’s next, (Citigroup going ni-nighs, and what that means. Not too big to fail, too big to rescue without Nationalisation of a company bigger than most countries,).

    Not so much on topic, but interesting: The GOP has got a problem. Well they’ve got a lot of problems, but this one is one they’ve faced before. Back when Bubba Clinton came into office he tried to reform the silly expensive and lackluster way the Americans deal with healthcare. Problem was, and is, that any reform is likely to be in the way of what the GOP calls socialism. It is also likely to improve health care for many, many, many, folks who vote GOP.

    Those voters are quite likely to like that, and are therefore likely to have a wee think about some of the feathers that the GOP has been selling to them for lo these many years. They are likely to conclude that those feathers about the evils of socialised medicine come from a horse, and that the GOP is no longer worthy of their vote, and that perhaps the ‘small government’ they have been buying all these years isn’t the best way of doing things. So the GOP goes hard out to make sure Bubba’s healthcare plan fails. The GOP can’t afford for health care reform to work. Think about that.

    day jar vue and read the linked bits in that piece, the GOP is quite open that they will try to wreck any reform of Healthcare, not because they think reform won’t work, but because it will be popular, and the GOP’s ideology will be shown to be fail.

    ‘That’s quite the party you got there. What do you call it?’
13. rave 13

    24 November 2008 at 12:51 am

    Northpaw:

    Read Skinny’s blog. Interesting. Bears out my position. Difference between Keynes and White probably not the main story as Monbiot would have it. Main story is US hegemony led by big banks did not want a world state bank internationalising the business of private banks and role of dollar. Skinny’s history of Citigroup in Brazil makes clear why. US bought and sold LA regimes every few years. Nominally independent but actually US financial colonies. Neo-liberal period was really a generalisation of US post-war recolonisation of LA to the rest of the world.

    Phil Sage:

    I take it you are saying that the US is the biggest debtor nation so how can it be hegemonic over others. As I understand it US debt doesnt devalue the dollar because first, the dollar is the world reserve currency and it can print petrodollars at no cost. Second US foreign investment in other countries generates about the same mass of profits as that in the US domestic economy. So the US banks and corporates can export capital to take advantage of cheap labor and raw materials in other countries to maximise profits, yet continue to suck in imports and let others pay via bonds payable in petrodollars. Win Win.
14. Ari 14

    24 November 2008 at 5:11 am

    That means that at Bretton Woods Keynes scheme was already utopian, and that today any attempt to revive it sows massive illusions about the possibility of reforming global capitalist system heading for depression and inter-imperialist war.

    I don’t think that word means what you think it means. Utopian is generally used to refer to ideas that are theoretically perfect but don’t work out in practice.

    Keynes’ ICU strikes me as being perfectly practical, but politically difficult to implement precisely because it tries to minimise debt.

    There can be no rebalancing or redistribution of incomes among nations or people when a tiny minority owns the vast accumulated wealth of the world and has the power to prevent any change in this system. The change will only come when this concentration of wealth is expropriated by the people who produce it in the first place.

    Actually, I’d say that as long as no part of establishing an ICU would have to go through the security council, it could easily pass the UN general assembly. Whether there are additional stumbling blocks is another question, of course, and I imagine that you’re quite correct that business interests wouldn’t like it. The Second Committee is also composed of nations that mostly don’t have large amounts of credit, too.

    Now, opposing it at a national level would indeed be more troublesome, and certainly something we could expect from parties like National & the Republicans, not to mention the PRC as a whole.
15. northpaw 15

    27 November 2008 at 6:46 pm

    Attention SP, rave, redlogix and interested others on this thread. Back when we were doing this commentary string I asked my buddy at witness (features the skinny on banking series) to come up with a paper I once read where Keynes recommended Roosevelt print more dough to facilitate recovery in the Depression… viz the original source of liquidity for an answer. Anyway, today the link came back. It’s on the guardian with full pdf access if you’d like that.

    I guess you’ll appreciate the irony of how rightwingers all too frequently slam keynesianisms etc without any regard to from whence wisdom came.. well now the Bernanke-panky and co look well and truly behoven. Along with their acolytes.. 🙂
16. Pascal's bookie 16

    27 November 2008 at 8:45 pm

    Thanks northpaw, “recrudescence” Crikey, ain’t he flash?

    Re your last para, the attached is fun . Adapted from a book by Jonathan Chait, (The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics).

    taste: re Cheney getting the supply side religion in 1974

    At that moment, there were a few points that Cheney might have made in response. First, he could have noted that the Laffer Curve was not, strictly speaking, correct. Yes, a zero tax rate would obviously produce zero revenue, but the assumption that a 100-percent tax rate would also produce zero revenue was, just as obviously, false. Surely Cheney was familiar with communist states such as the Soviet Union, with its 100 percent tax rate. The Soviet revenue scheme may not have represented the cutting edge in economic efficiency, but it nonetheless managed to collect enough revenue to maintain an enormous military, enslave Eastern Europe, fund ambitious projects such as Sputnik, and so on. Second, Cheney could have pointed out that, even if the Laffer Curve was correct in theory, there was no evidence that the U.S. income tax was on the downward slope of the curve–that is, that rates were then high enough that tax cuts would produce higher revenue.

    But Cheney did not say either of these things. Perhaps, in retrospect, this was due to something deep in Cheney’s character that makes him unusually susceptible to theories or purported data that confirm his own ideological predilections. (You can almost picture Donald Rumsfeld, years later, scrawling a diagram for Cheney on a cocktail napkin showing that only a small number of troops would be needed to occupy Iraq.) In any event, Cheney apparently found the Laffer Curve a revelation, for it presented in a simple, easily digestible form the messianic power of tax cuts.
17. rave 17

    27 November 2008 at 9:10 pm

    Thanks northpaw.
    Keynes was right about bosses not being tempted to invest until they could see the queues lining up to shop. They have been handed trillions and all they do is hoard it and buy up their failed competitors.
    Here’s a neat blog on solving the crisis by buying back Long Island.
18. RedLogix 18

    28 November 2008 at 7:37 am

    PB,

    Thanks northpaw, “recrudescence’ Crikey, ain’t he flash?

    Keynes use of language is the product of a Cambridge/Eton system that educated it’s students to use words with precision. Most of us use less than a few thousand different words in daily use; whereas in that era, these men were trained to think with clarity and had a vocabulary of many ten of thousands of words to express themselves with.

    The current debased fashion is to select words primarily for their emotive impact; to serve spin by appealling to our fixed and pre-formed conceptions.

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1. Forcing savers to help borrowers? « The visible hand in economics: posted on 24 November 2008 at 10:37 am

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